Does anyone think this dream still works?
By Andy Serwer

(FORTUNE Magazine) – THE TROUBLE WITH DREAM TEAMS IS that they aren't built to last. The 1992 USA Olympic basketball team played only eight games. Derek and the Dominos made just one album. Never mind Ben and J. Lo. Question is, Will the same be true of DreamWorks, Hollywood's ultimate dream team? It was a little over a decade ago that Steven Spielberg, Jeffrey Katzenberg, and David Geffen formed this grand troika with much fanfare. Not long after DreamWorks got off the ground, I spoke to Katzenberg about his baby. "This isn't short term," he said. "We're working on this for the next ten years." I also got hold of a confidential memo that outlined the company's ten-year financial projections.

It's now ten years after, and given the recent spate of bad news surrounding the company, it's time to measure how much of the dream this team has realized. First, an update. In early May, DreamWorks Animation (spun off as a public company last October) announced boffo numbers from Shrek 2: 35 million DVDs sold by the end of the first quarter. Problem is, the company had promised even higher sales, so DWA shares slid. The stock took another beating after Madagascar failed to be the gigahit the Street was expecting. Plaintiffs lawyers began slapping the company with lawsuits alleging false and misleading statements. Then, in July, DreamWorks announced (a) an anticipated loss in the second quarter, (b) an informal SEC inquiry into stock trades and financial disclosures, and (c) that it was shelving a secondary offering. DreamWorks' shares fell to the low 20s. Separately Katzenberg et al. looked to deal their live-action studio--still a part of DreamWorks SKG, the private company that holds the nonanimation businesses--to NBC Universal.

How's Katzenberg--a guy known for his golden touch--holding up through all this? He isn't talking, but a friend says, "Jeffrey's self-flagellating and self-deprecating. It's like he's saying, 'It's my bad.' " Says a company insider: "These are some really hard lessons. But you cannot believe the resolve with which he is going about trying to right this. He's working triple time." No one doubts his work ethic (he's been known to do three breakfast meetings, the third beginning at 8 A.M.). The issue is whether he has the right stuff to run a public company. "In a pitch meeting someone will say, 'This is going to be the greatest movie ever made,' " says Dave Davis, a former Hollywood investment banker. "It's just rhetoric, but when you're running a public company, you say something like that and analysts are writing it down."

Even if Katzenberg does get the animation company back on track, the vision of a multiplatform media empire is at least a dream deferred. The 1995 offering memo broke the company into four discrete units: animation, live action, television, and music. First the good news: The memo forecast that animation would have revenue and operating income of $802 million and $315 million, respectively. Ten years on, DreamWorks Animation (the public company) reported $1 billion and $438 million, respectively, for 2004. Also in 1995, the company figured its live-action unit would be doing $1.4 billion in revenue. According to an executive familiar with this business, that figure "isn't even close." As for the two other divisions, TV and music, the 1995 forecast was for $531 million and $341 million in sales; those units have been disbanded or sold. Perhaps Geffen put it best during an interview earlier this year. "I wouldn't go into the entertainment industry today," he reportedly said. Sounds like a wake-up call, if not the end of a dream.

ANDY SERWER, editor at large of FORTUNE, can be reached at Read him online in Street Life on and watch him on CNN's American Morning and In the Money.